Have you been to Texas lately? I was there last month, and you should really know what’s happening in the real estate world there.
Texas radio shows and billboards are covered with ads for real estate investments. But it’s not what you might expect.
These are not ads to find investors. These are ads to find and train syndicators.
The rise of amatuer real estate syndicators
Multiple competing programs have trained tens of thousands of “regular people” to become real estate syndicators and there’s nothing wrong with that.
I’m all for it, in fact! I’m thrilled that these opportunities exist. We all started in a similar place, after all.
However, I’ll admit that I’m nervous about it.
I’m nervous because some of these new syndicators are raising hundreds of millions of dollars from investors all over the United States, then reselling their deals to the next trainee for substantial profits within 18-30 months.
The problem with that? Most of these real estate syndicators haven’t tasted the bitter gall of a downturn. Their inexperience has led them to make broad statements like:
- “It’s different this time.”
- “Rent prices will always increase.”
- “Everyone needs a place to live.”
- “They’re not making any more land.”
That’s the same sort of presumptuous language I heard leading up to 2008. No, I’m not predicting a repeat of 2008’s financial crisis, but I am warning that hubris often leads to disaster.
A broker told me recently that he routinely markets deals where multiple students from the same program bid against each other. The property winds up selling 20% higher than the original asking price.
Then, they rinse and repeat, selling to the next person for even more.
It sounds great and all, but did you ever play musical chairs as a kid? At some point, the music stops. What happens then?
My message: In a world where amateurs and experts profit equally, it’s hard to know who the experts really are.
If you…